RBI Tightens Norms For NBFCs For Gold Lending

9/17/2013 3:06 AM ET

The Reserve Bank of India (RBI) has tightened norms for non-banking finance companies (NBFCs) which lend against gold, a fast-growing business in the country, in line with the recommendations of an internal panel.

The RBI said lenders need to value the pledged gold at the average closing price of 22-carat gold for the preceding 30 days as quoted by the Bombay Bullion Association Ltd, to arrive at the loan-to-value ratio.

The ratio would remain at 60 percent for loans against jewellery.

"Currently, there is no standard method for arriving at the value of gold accepted as collateral and valuation is arbitrary and opaque," the apex bank said in a notification issued late on Monday.

The apex bank also streamlined the process by which lenders auction gold when a borrower defaults, saying lenders need to declare a reserve price for the pledged ornaments.

Lenders would also need RBI approval to open branches more than 1,000. Besides, no new branches will be allowed without adequate storage facility for gold.

"Unbridled growth may not be in the overall interests of the concerned NBFC or the sector and there is a need for consolidation of the existing network," the RBI said.

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